The sub-prime lending crisis prior 2008 was the result of mortgage cards stacked to resemble a strong structure, but literally built on nothing. It was going to collapse eventually, there’s no way around that. The principle is TANSTAAFL, There Ain’t No Such Thing As A Free Lunch. Something doesn’t, and can’t, come from Nothing. That said, a house of cards will stand until a breeze comes along. In this case, the breeze came from Kyle Bass, an Argentine hedge fund manager currently based out of Dallas, Texas. Bass runs CAD, the Coalition for Affordable Drugs, and uses this operation to manipulate stock values. He’ll have his special interest group set their sights on a pharmaceutical and through some backhanded legal means force that pharmaceutical to decimate their prices. When this drop hits Wall Street, Bass is sure to short-sell his holdings with the pharmaceutical company in question. This makes him millions in a way that essentially defrauds the sick from future developments of a kind companies with resources enough to make such discoveries happen can facilitate. It’s a drop in the Bucket on Bass, however. He hit the market betting against the house of cards that was America’s sub-prime lending market, and made a financial killing. The thing is, he may have been partially responsible for initiating the collapse.
Bass worked with Bear-Stearns until he no longer did. Sometime after he was released from the organization, Bass told a journalist with CSPAN that Goldman-Sachs had refused a routine transaction from them. The journalist asked a probing question on the air, even as Goldman-Sachs reversed its decision at virtually the same time. It was too late, however; the damage was done. The financial community of Wall Street lost confidence in Bear-Stearns, and by the end of the week, J.P. Morgan Chase had absorbed the bank.
The contested transaction was a routine novation. Novations are kind of like the transitive property in mathematics. If A equals B, and B equals C, then A equals C. You’ve got to pay Steve, Jenny has to pay you. Let Jenny pay Steve and save some time. That’s the basic principle behind a novation, and in banking this will apply to things like mortgage-backed securities and cash. This mortgage-backed security is worth this much money, so you can exchange the two. There were no problems with any of the big banks, trust wise; they were all built on novations contrived from sub-par loans not worth what they were traded for. So when Bass pulled the table-cloth out from under the cards that March, they had finished falling by the end of the year.
According to UsefulStooges’ very informative article: Kyle Bass The Frantic Investments of a Desperate Gambler, Bass is hand-in-glove with socialist despot of Argentina Cristina Fernandez de Kirchner. It would be more surprising if what he did were not informed by a socialistic financial assassination putsch.